Linking storage facilities and McMansions

One billionaire made money on storage facilities and now he hope to profit from McMansions:

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In the depths of the last housing crisis, self-storage billionaire B. Wayne Hughes flew to Las Vegas and Phoenix to lay the groundwork for a new bet. His plan: Buy foreclosed homes, spruce them up and rent them out. He tested his ideas on three houses in each market and then dispatched deputies to buy tends of thousands more across the U.S.

Nine years later the land grab is paying off…

And the rest is behind the paywall. But, the possible connection between these two investments is intriguing:

  1. Both self-storage units and McMansions are relatively recent phenomenon in terms of their scale and regular use.
  2. Americans have a lot of stuff. One answer to having a lot of stuff is to put things in storage. Another solution is to buy a bigger house to put everything in.
  3. Both have architectural quirks. As a kid, I remember more single-story, sprawling self-storage facilities. Now, I see more two to three story buildings – I can think of at least three within 10 miles of my house in built-up suburbia – that look a bit nicer (though are still boxy).
  4. With their architectural quirks, are both of these kinds of structures naked ploys for making money? The McMansion tries to impress and offer as much space as possible for a reasonable price. The self-storage unit facility maximizes the number of storage units and space that can be rented.

Seeking insurance for black swan events

Lloyd’s of London is interested in black swan insurance that would help protect against losses from unusual events:

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Commercial insurance market Lloyd’s has said insurers worldwide will pay out more than $100 billion in coronavirus-related claims this year.

But many firms are frustrated that their business interruption policies do not cover the pandemic and some in Europe and the United States are in dispute with insurers.

The Black Swan cover could be used to ensure payments after catastrophes such as a cyber attack or solar storm destroying critical infrastructure, as well as for pandemics, Lloyd’s said in a report published on Wednesday.

In The Black Swan, Nassim Nicholas Taleb defines black swan events this way:

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. (xxii)

What phenomena fall into this category? According to Taleb:

Fads, epidemics, fashion, ideas, the emergence of art genres and schools. All follow these Black Swan dynamics. (xxii)

It seems like a conundrum: how exactly to provide insurance monies for events that are unknown and unpredictable? One of the important features of the insurance industry is being able to estimate risk and possibly payouts. A black swan event makes this very difficult if not impossible. At the same time, we know black swan events are possible – even if we do not know which ones might occur or what new phenomena might arise – so having money available to address the situation seems wise.

It would be interesting to see how this plays in the court of public opinion. When crisis hits, I would guess many people want governments and large corporations to be able to respond quickly and dispatch needed monies. Yet, having a large slush fund or unlimited monies to address potential situations could strike some as problematic.

Providing a fully designed and furnished home

The CEO of Restoration Hardware recently discussed providing customers with homes that are completely designed and furnished:

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I would ask everybody in this call, if you get a second tonight, go on Zillow, go on Redfin, go on, pick your website for real estate. Go look at 100 homes tonight in a price range that you think we might play at. And tell me how many have great architecture, tell me how many have great interior design and how many have great landscape architecture. If it’s 1% — if it’s more than 1%, like you must live in a really great area. But even in the great areas, it’s so low. How many friends’ houses do you go to that you say, “Wow, this is beautiful architecture. This is great interior design. This is great landscape architecture”? Almost never. Almost never. It’s like a completed — completely uncharted world.

When you really look at the big homebuilders, they’re kind of stamping out some — it’s not a McMansion anymore. Call it whatever you want. But it’s a stamp out, right? And it’s a nice organized development, but there’s no one providing completely turnkey homes. Like Eri says to me a lot, like they don’t sell you a car without an interior. You don’t go buy a beautiful Mercedes or whatever brand you like, and it comes without an interior and you got to figure it out yourself.

I don’t know how many people on this phone have tried to do their own interior design or furnished their house. It’s a nightmare. It’s a nightmare for me, and I do it for a living. I have a house in the Napa Valley that I finished remodeling like 3.5 years ago. It’s not furnished yet. It’s that hard. It’s a pain in the ass. And so we know how hard it is. We know we’re good at it….

And I sit here and I go, well, why can’t we — we’re really good at architecture, really good at interior design, really good at landscape architecture. I know we can design and build things and furnishing that people will like. And I think there’s — if you think about people with money, okay, and you think about just what’s the most valuable asset, time, right? By far, the most valuable asset. Everybody on this phone can figure out — if you lose your money, you can figure out how to make more money. If you lose your time, you just can’t get it back, right? So we think a lot about businesses that deliver time value will become more valuable.

Four things stand out to me here:

  1. It is interesting to consider this in light of the increasing emphasis on staging properties. With staging, the design is more temporary but it gives potential buyers a vision for what the property could be. The option discussed above is more long-term.
  2. Generally, Americans act as though homes should be empty boxes filled in by owners to fit their tastes. When people buy homes, they customize them (within the confines of what is possible with the home) to what they desire and what they can afford. What if it could also work the other way around: a fully designed home shapes the owner as they come to grow into it?
  3. This highlights the mass produced nature of many American homes, whether they are McMansions are not. Particularly after World War Two, larger homebuilders started constructing more homes and buyers purchased them more like factory items. Straddling this gap from mass produced home to more customized home is not easy.
  4. I think he is right that there is a market for such homes. Yet, I imagine the market is fairly small given the price that would be involved. It is one thing to stage a home and then take those items back out; it is another to have a fully immersive design process and keep everything. For a business, I wonder what is the lower price point of homes that this makes sense for businesses (particularly if this is meant of more of a luxury product that is supposed to remain exclusive).

 

The top US cities for Fortune 500 company headquarters, COVID-19 edition

In an article about working remotely, the Wall Street Journal included this graphic about the locations of the headquarters of Fortune 500 companies:

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This is an interesting topic to raise as more workers are laboring away from the office. What will happen to headquarters?

One option would be that headquarters remain even as organizational workforces scatter. There will always be a need to at least occasionally hold meetings or access resources or project a presence in a major city. Cities would like this as headquarters are a status symbol.

Another option is that headquarters move to locations more central to their workers or more attractive for workers. This is more unlikely but the same factors pushing workers away from major cities – high housing costs, traffic and congestion, density with threats of pandemics – could affect headquarters as well. It could be a big strategic move to follow workers to a city not on the list above.

The effects of either could be big for cities. Consider New York. It is the clear leader in terms of headquarters, it is a leading global city, and it is not just a center for business but also for news, entertainment, the arts, and other spheres. Even if the headquarters stay, the loss of high-status employees hurts. If the headquarters leave or become shells of themselves, there could be a loss of status.

When America’s unofficial third place closes 400 locations

If Starbucks is an important third place for Americans to gather and interact, what happens when the company closes 400 stores because of COVID-19 and to focus more on drive-through and carry-out business?

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Starbucks announced on Wednesday that it will close 400 of its roughly 10,000 locations in the U.S. and Canada over the next 18 months as the company projects to lose up to $3.2 billion in sales this quarter due to the ongoing coronavirus pandemic. It’s not exactly a retrenchment. The company plans to end this year with 300 more stores than when it started, even accounting for the closures—but that’s half of what the chain had originally been planning. About 40 to 50 of the new locations will only offer pickup or drive-through.

Starbucks typically closes about 100 stores every year due to leases expiring and market conditions. The decision to up that number signals that Starbucks expects the recovery from the current recession to extend far into the new year. The company did not list which locations it plans to shutter, though it did say that they would be in “high-social gathering locations” like campuses and malls. Shares for the company fell by 4 percent in midday trading as the news broke. “As we navigate through the COVID-19 crisis, we are accelerating our store transformation plans to address the realities of the current situation, while still providing a safe, familiar and convenient experience for our customers,” Starbucks CEO Kevin Johnson said in a press release.

While nearly all of the company’s cafés have reopened in limited capacities without in-store seating, the twin health and economic crises continue to discourage consumers from spending and venturing out to public spaces. The shock to Starbuck’s business model has reportedly accelerated its shift to focusing on takeaway service, which it had already been planning to do before the pandemic. In November, the company opened its first Starbucks Pickup store at Penn Plaza in New York City, where customers order and pay through their phones. While Starbucks locations have long served as a “third place” where people could meet and relax, customers in recent years have been placing more and more orders for takeout, perhaps due to the company’s recent focus on mobile ordering. The company estimates that 80 percent of its orders at company-owned stores in the U.S. are to-go. Now that the virus has made people even less likely to dawdle at cafés for an extended period of time, Starbucks expects that percentage to rise.

The new stores will emphasize the use of Starbucks’ ordering app, Uber Eats, walk-up windows, and curbside pickup to facilitate social distancing. Some store layouts will also begin including pickup counters that exclusively cater to mobile orders and food delivery services. The company hopes that large U.S. cities will eventually host a mix of cafés and pickup locations that are located within walking distance of one another in order to reduce crowding.

For a long time, the presence of a Starbucks has denoted a particular status for an area or community. Will the loss of a Starbucks or even the shift from a place one can sit and gather to one that sends food and drinks out the doors and windows harm communities?

Even without COVID-19, this hints at the limited public realm Americans have where fast-food places are some of the popular places people can or will gather. Starbucks presented this possibility though as a private business they still aim to make money and will restrict certain behavior. As the article notes, this shift may have already been underway; I noted the busy Starbucks drive-through early this year on a rare work session at a local store.

Argument: “the real civic religion of America, business at all costs”

Which values should guide decisions in a time of crisis? Here is one argument regarding how decisions are made in the United States:

These approaches are the horns of America’s corona-dilemma. Every society has reacted to COVID-19 according to its principles or, if no principles were to hand, its habits. It has been America’s misfortune that its principles and habits are ill-suited to managing an epidemic. The federal system, by functioning as it should, prevented the kind of nationwide shutdown that worked in smaller countries like Austria. The real civic religion of America, business at all costs, can accept the redirection of the economy by the Defense Production Act, but it cannot tolerate the suspension of all economic activity. Yet a powerful counter-impulse — averse to risk, trusting of authority, and hence likely to seek out niches in the economy which are immune to booms and busts — prefers to shelter in place.

It is hard to make sweeping claims about cultural values in the midst of significant social change. At the same time, understanding “patterns of meaning-making” (the definition of culture from sociologist Lyn Spillman) is invaluable for analyzing why certain actors respond as they do in such times.

This reminds me of two sociological works that get at the same issue:

1. Emerson and Smiley’s 2018 book Market Cities, People Cities examined cities around the United States and the world to see if they put markets or people first. On the whole, American cities privilege markets with their policies and rhetoric. In American communities, growth – usually measured as economic growth and/or population increases, is always good. (See an earlier post on this book here.)

2. Dobbin’s 1994 book Forging Industrial Policy suggests in the early decades of the railroad the United States pursued a public-private policy regarding develpoment compared to the laissez-faire approach of Britain and the top-down, centralized approach of France. Yet, in the last few decades, a growing chorus of voices argues the United States privileges the interests of corporations over the welfare of all residents.

There could be other contenders for the civic religion of Americans including individualism, the civil religion described by sociologist Robert Bellah, middle-class values, and the importance of private property and private spaces. But, in this particular situation, what exactly should be done regarding businesses and the economy is a particular hot point.

From outlier to outlier in unemployment data

With the responses to COVID-19, unemployment is expected to approach or hit a record high among recorded data:

April’s employment report, to be released Friday, will almost certainly show that the coronavirus pandemic inflicted the largest one-month blow to the U.S. labor market on record.

Economists surveyed by The Wall Street Journal forecast the new report will show that unemployment rose to 16.1% in April and that employers shed 22 million nonfarm payroll jobs—the equivalent of eliminating every job created in the past decade.

The losses in jobs would produce the highest unemployment rate since records began in 1948, eclipsing the 10.8% rate touched in late 1982 at the end of the double-dip recession early in President Reagan’s first term. The monthly number of jobs lost would be the biggest in records going back to 1939—far steeper than the 1.96 million jobs eliminated in September 1945, at the end of World War II.

But, also noteworthy is what these rapid changes follow:

Combined with the rise in unemployment and the loss of jobs in March, the new figures will underscore the labor market’s sharp reversal since February, when joblessness was at a half-century low of 3.5% and the country notched a record 113 straight months of job creation.

In other words, the United States has experienced both a record low in unemployment and a record high within three months. A few thoughts connected to this:

1. Either outlier is noteworthy; having them occur so close to each other is more unusual.

2. Their close occurrence makes it more difficult to ascertain what is “normal” unemployment for this period of history. The fallout of COVID-19 is unusual. But the 3.5% unemployment can also be considered unusual compared to historical data.

3. Given these two outliers, it might be relatively easy to dismiss either as aberrations. Yet, while people are living through the situations and the fallout, they cannot simply be dismissed. If unemployment now is around 16%, this requires attention even if historically this is a very unusual period.

4. With these two outliers, predicting the future regarding unemployment (and other social measures) is very difficult. Will the economy quickly restart in the United States and around the world? Will COVID-19 be largely under control within a few months or will there be new outbreaks for a longer period of time (and will governments and people react in the same ways)?

In sum, dealing with extreme data – outliers – is a difficult task for everyone.

The effects of social class, education levels on ability to work from home during COVID-19

Survey results from Pew Research show that whether American workers work from home amid the COVID-19 pandemic is affected by social class and education:

Four-in-ten working-age adults – those ages 18 to 64 – say they have worked from home as a result of the coronavirus outbreak. Men and women in this age group are about equally likely to say they have worked from home.

About three-quarters of working-age adults with a postgraduate degree (73%) say they have worked from home as a result of the coronavirus outbreak, as do 62% of those with a bachelor’s degree. Far smaller shares of working-age adults with some college (35%) or with a high school diploma or less education (22%) say they have worked from home.

Similarly, working-age adults with higher incomes are more likely than those with lower incomes to say they have worked from home because of the coronavirus outbreak: 61% of those in the upper-income tier say they have done this, compared with 41% in the middle-income tier and an even smaller share (27%) of those with lower incomes.

In states with a high number of coronavirus cases, 45% of working-age adults say they have worked from home because of the outbreak; smaller shares in states with a medium or low number of cases say the same (38% each).

The knowledge economy is up and running. Those with more education and income have jobs and workplaces that can be done from home and other locations. This could have to do with the kind of work being done and the resources the organizations and/or workers have. The dividing line of a bachelor’s degree or higher does not just affect future earnings; it can affect exposure to particular diseases.

On the other hand, workers with less education and lower incomes are less able to work at home. This could put them in settings with more contact with others and present a tough decision between keeping a job and wanting to stay healthy. The reactions of workers in numerous facilities and companies suggests this is indeed a real issue. The dividing line of a bachelor’s degree or higher does not just affect future earnings or opportunities; it can affect exposure to particular social conditions.

In the longer run, I would guess there will be plenty of future research on the effects of COVID-19 by social class. Whether facing a pandemic or not, working from home is a luxury for those who have particular social statuses. Since the American economy is a long ways from making all or even most jobs doable from a distance (and there are likely other important considerations regarding this), this will continue to be an important matter.

The backup offices for businesses and organizations to weather crises, disasters

Maintaining essential operations for a business or organization might be easier if they have a “ghost office” available:

Terrorist attacks. Natural disasters. And yes, pandemics. These are just a few of the events that might cause a company to abruptly ditch their usual building and relocate staff to a backup office – also known as a “disaster recovery” or “business continuity” site…

Not all businesses can afford to have these dedicated facilities at their disposal, but backup offices can prove crucial to the survival and safety of certain companies whenever crisis hits. Often, disruptive situations only last a few days or weeks. But with coronavirus potentially lasting well into 2021, firms may find themselves relying on backup offices much longer than ever before…

By spreading workforces across a greater number of sites, businesses are clearly hoping that they can mitigate some of the risk presented by Covid-19, the disease caused by the new coronavirus. But some observers say working from home is better than opening up more offices, since any shared workplace could become a hotbed for virus transmission. Morley says Sungard’s clients are indeed thinking about hygiene. “Customers have actually said, ‘Look, before we come in can you do a deep clean?’” he explains…

Such backup offices are termed “hot sites” in the industry because they can be used immediately and don’t need to be kitted out or “warmed up” first. “Cold” sites, by contrast, could be as simple as an empty warehouse to which equipment can be shipped during a crisis.

Even if the majority of the workforce could work from home, how many organizations can move everything out of the office or online? The article presents such locations as a luxury – maintaining sites for long periods without using them could be very costly – but it is hard to imagine that many organizations or businesses can work fully off-site. There might be access to vital equipment (servers? files? machines?) as well as a desire for important personnel to gather and make decisions. At the least, I imagine many organizations have and/or will reconsider disaster/crisis plans.

The article hints at this and I am not sure how physical spaces could help much here: a pandemic crisis is much different than a natural disaster. With nature interfering with business, the needs might be to have electricity, Internet, access to workers and clients spread out over distances. Putting people in a centralized backup office makes a lot of sense for this. On the other hand, a pandemic means that a centralized location might be even worse for maintaining operations. The actual physical office space becomes less valuable or helpful in some disasters compared to others. Will some companies move to having separate safe offices for pandemics and natural disasters? Or, will the popularity of these sites decrease as organizations focus more on equipping individual employees and arms of the organizations to work from remote locations if needed?

The advantages McMansions may offer for working from home

With coronavirus pushing more people to work from home, I have seen more advice about setting up a home workspace. I found one example that suggests workers in all kinds of homes face similar challenges:

First things first: As we’re learning, there’s no “normal” with the coronavirus. But that also applies to where you live. “Home workers” now include apartment dwellers, Millennials who share a house, Midwesterners with basements, suburbanites in McMansions, and more. You’ll have to figure out what works for you, within your own unique environment. Still, some rules apply to just about everyone.

Is this true? Do McMansion-dwellers have any advantages in working out of their large homes? A few ideas:

  1. All that space means McMansion occupants have plenty of options to choose from regarding where to work. They could even rotate (though these articles tend to emphasize making one space a clearly delineated work space).
  2. All that space also means they can keep their distance from all other occupants.
  3. Although the McMansion might have a lot of open common space, there are likely parts of the house that can be pretty quiet and separate from other activities.
  4. Related to #1-3, who likes open office plans?
  5. If a worker needs to bring lots of materials home, the McMansion likely has a lot of storage space. A temporary home office might barely be noticed.
  6. Because of the size of the home, the walk from the office space to the kitchen or bathroom could be a sufficient break or help the worker acquire their needed steps.
  7. The McMansion home worker pressed for cash could rent out a room or create a coworking space (while attending to local zoning codes, of course).
  8. There could be enough space to recreate the spaces in a large office building, ranging from a workout room to a large eating area to spacious bathroom to room to spread out one’s work.

Americans like their private spaces but being confined to one’s home for a few weeks may just reinforce the desire of some to have plenty of space.